Kids in the Basement, 2017 Update

Yesterday we looked at household formation in Oregon. Historically one key component has been young Oregonians leaving the nest after finishing school and/or finding a job. However, in the aftermath of the Great Recession we saw a larger share of young adults, both locally and across the country, living at home. Of course this was for logical reasons. Employment opportunities barely existed and a larger share returned to school in hopes of increasing their skills for better earning potential in the future.

However as the recession turned into recovery, which turned into expansion, the expectation was for these young Oregonians to begin to move out on their own. Nearly 3 years ago at their annual forecast breakfast I told the home builders that we had reached Peak Kids in the Basement. Well, I was wrong. We have not seen the share of young Oregonians living at home decline. At all.

What we have seen, however, is a shift in employment for those living at home. Previously the increase had been entirely among those without a job. The vast majority of that increase was due to larger enrollments in higher education, both full-time and part-time. In recent years we have seen a cyclical decline in non-employed young Oregonians living at home, but a corresponding increase in those with a job. So the economic conditions changed as expected, however the behavior did not. One key suspect as to why may be housing costs. High rents today may be a major hurdle to forming one’s own household or trekking out on one’s own, even with roommates. Additionally, given high rents, a young household has trouble saving money toward a down payment on a house. As such, living at home even while employed, allows for greater savings and financial flexibility. That said, I don’t have a full explanation for these trends.

Furthermore we have yet to see any rebound, cyclical or otherwise, when it comes to idle youth or boomerang college graduates. Keep in mind these subgroups are based on a very limited sample, so reading too much into them may be a fool’s errand.

One thing we do know is that some major life events, or milestones to adulthood, are shifting later into life over the past couple of generations. No, this isn’t a Millennial story per se. Rather, they are just the continuation of these trends.

local labor and housing markets shape the ability of young people to find good jobs and affordable housing, which in turn affects whether and when they form their own households. Apart from local markets, patterns in migration may help create geographic differences in young adult living arrangements.

When looking across states, the report finds Oregon’s share of young adults living at home is the 11th lowest in the nation. Now, the increase from before the Great Recession to today has been the same, we just have a lower rate overall. I suspect much of that is due to our strong in-migration flows. It is hard to move to a different state and still live at home, obviously.

Second, Census compares what age most people say is the right time to complete these various milestones to adulthood and what share of the population actually does so by that age. See the two farthest right columns in the table below. For example, the ideal age for completing school and finding a full-time job is 22 years old. However only about one-half and one-third of young adults have actually done that by age 22.

Third, there has been an increase in so-called idle youth among the older Millennials living at home (25-34 years old). Census reports about 1 in 4 of this group are neither working nor enrolled in school. The report goes on to say that such individuals are more likely to have lower levels of educational attainment, which makes economic sense. However, Census also notes such individuals are also more likely to be disabled, and/or have a child. Either of which does make it harder to find work, and live on one’s own. Not all of the increase in young Americans living at home can be attributed to the economy. Some is due to life circumstances, evolving behavior and the like.

In conclusion, the share of young Oregonians living at home has not changed in recent years. Given that a larger share of those living at home now have a job, I do suspect there will be some cyclical decline moving forward as the economic expansion continues. Rising incomes and slower rent increases are also supportive of stronger household formation and stepping out on one’s own. However, at some point the proof is in the pudding. We’re clearly not there yet.

Note: While I was wrong in my 2014 housing prediction — and I felt confident in it — I was right in my 2015 housing prediction (Peak Renter), which I was much less confident in. There was no real 2016 housing prediction unless we can count the Housing Inflection Point.

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